9. Income Taxes

The components of income (loss) before income taxes were as follows (in thousands):

	2012			2011		2010

United States	$	(218,049	)	$	47,874	$	73,130
Foreign		6,743			4,883		1,579

Total	$	(211,306	)	$	52,757	$	74,709

Components of the provision for income taxes were as follows (in thousands):

	2012			2011			2010

Current:
U.S. federal	$	(390	)	$	11,028		$	11,852
State		1,343			5,891			2,593
Foreign		6,129			2,312			39

Total current		7,082			19,231			14,484

Deferred:
U.S. federal		20,339			7,573			15,380
State		400			(264	)		(457	)
Foreign		(372	)		(320	)		—

Total deferred		20,367			6,989			14,923

Provision for income taxes	$	27,449		$	26,220		$	29,407

Components of net deferred tax liabilities were as follows (in thousands):

	December 31,

	2012			2011
Deferred tax assets:
Accounts receivable allowances	$	654		$	800
Unearned revenue		—			873
Accrued liabilities not yet deductible		4,515			3,436
Federal and State net operating loss ("NOL") carryforwards		37,252			45,483
Tax credit carryforwards		833			167
Stock-based compensation		4,221			1,971
Other		1,355			1,109

Total deferred tax assets		48,830			53,839
Less valuation allowance		(27,897	)		(667	)

Deferred tax assets after valuation allowance		20,933			53,172
Deferred tax liabilities:
Purchased intangibles		(37,658	)		(44,548	)
Property and equipment		(9,014	)		(11,680	)
Other		(1,291	)		(1,625	)

Total deferred tax liabilities		(47,963	)		(57,853	)

Net deferred tax liabilities	$	(27,030	)	$	(4,681	)

Reconciliation to consolidated balance sheet (in thousands):

	December 31,

	2012			2011
Deferred tax assets:
Current	$	864		$	4,796
Noncurrent		171			—
Deferred tax liabilities:
Current		(37	)		—
Noncurrent		(28,028	)		(9,477	)

Net deferred tax liabilities	$	(27,030	)	$	(4,681	)

Income tax expense differs from the amounts that would result from applying the federal statutory rate to our income (loss) before income taxes as follows (dollars in thousands):

	2012			2011			2010

Federal statutory tax rate		35	%		35	%		35	%
Expected tax (benefit) expense	$	(73,957	)	$	18,465		$	26,148
State and foreign income taxes, net of federal (expense) benefit		(1,312	)		2,955			1,637
Non-deductible compensation		3,969			2,830			1,977
Non-deductible business combination transaction costs		202			1,998			—
Non-deductible goodwill impairment charges		67,418			—			—
Dividend		4,484			—			—
Tax credits		(3,025	)		—			—
Change in valuation allowance		27,230			—			(876	)
Change in uncertain tax positions		3,582			—			—
Other		(1,142	)		(28	)		521

Provision for income taxes	$	27,449		$	26,220		$	29,407

As of December 31, 2012, we had NOL carryforwards with a tax-effected carrying value of approximately $32.3 million and $4.9 million for federal and state purposes, respectively. Our federal NOLs will expire on various dates ranging from 2013 to 2031. Utilization of these carryforwards will be limited on an annual basis as a result of previous business combinations pursuant to Section 382 of the Internal Revenue Code. Expected future limitations are as follows (in thousands, amounts shown are not tax effected):

Years	Limitation

2013	$	11,035
2014		7,238
2015		7,238
2016		7,238
2017		6,571
2018		6,349
2019		6,200
2020		5,324
2021 - 2031 (in total)		34,988

We provide a valuation allowance for deferred tax assets when we do not have sufficient positive evidence to conclude that it is more likely than not that some portion, or all, of our deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon future taxable income during the periods in which those temporary differences become deductible. In assessing the need for a valuation allowance for our deferred tax assets, we considered all available positive and negative evidence, including our ability to carry back operating losses to prior periods, the reversal of deferred tax liabilities, tax planning strategies and projected future taxable income. We also gave specific consideration to the goodwill impairment charges recorded during the third and fourth quarters of 2012. (see Note 5). Given the significance of the goodwill impairment charges which cause our three year cumulative results of operations to be a loss, we do not believe we have sufficient positive evidence to conclude that future realization of all of our federal net deferred tax assets is more likely than not. As such, we established a valuation allowance of approximately $27.2 million at December 31, 2012. We will reassess the valuation allowance quarterly, and if future events or sufficient evidence exists to suggest such amounts are more likely than not to be realized, a tax benefit will be recorded to adjust the valuation allowance.

We recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more-likely-than not sustain the position following an audit. For tax positions meeting the more-likely-than not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. During 2012, we recognized a liability for uncertain tax positions in the amount of $3.6 million related to state and Israeli income tax positions. Interest and penalties related to uncertain tax positions are recognized in income tax expense. For the year ended December 31, 2012, we recognized $0.4 million of interest or penalties related to uncertain tax positions in our financial statements.

The change in unrecognized tax benefits for the years ended December 31, 2012, 2011, and 2010 were as follows (in thousands):

	Years Ended December 31,

	2012		2011		2010
Balance at beginning of year	$	100	$	—	$	—
Additions for tax positions related to the current year		—		100		—
Additions for tax positions related to prior years		3,697		—		—

Balance at end of year	$	3,797	$	100	$	—

The majority of our unrecognized tax benefit, if recognized, would affect our overall effective tax rate.

We are subject to U.S. federal income tax, income tax from multiple foreign jurisdictions including Israel and the United Kingdom, and income taxes of multiple state jurisdictions. U.S. federal, state and local income tax returns for 2009 through 2011 remain open to examination. Israeli and United Kingdom income tax returns remain open to examination for 2007 through 2011, and 2006 through 2011, respectively. We do not provide deferred taxes on the undistributed earnings of our non-U.S. subsidiaries in situations where our intention is to reinvest such earnings indefinitely. Furthermore, both our U.S. and non-U.S. subsidiaries have significant net assets, liquidity, and other financial resources available to meet their operational and capital investment requirements.

As of December 31, 2012, the aggregate undistributed earnings of our non-U.S. subsidiaries subject to indefinite reinvestment totaled $2.4 million. Should we make a distribution in the form of dividends or otherwise, we may be subject to additional income taxes. Excluding our operations in Canada, the unrecognized deferred tax liability related to the undistributed earnings of our non-U.S. subsidiaries is estimated to be $0.1 million as of December 31, 2012. This assumes we are able to recognize the benefits of a foreign tax credit upon remittance of the foreign earnings and does not contemplate the effect of those earnings on the valuation allowance.